# PASCHIMANCHAL VIDYUT VITRAN NIGAM LTD v. RAMAN ISPAT PRIVATE LIMITED & ORS

- **Citation:** 2023 INSC 625
- **Court:** Supreme Court of India
- **Decided:** 2023-07-17
- **Case number:** Civil Appeal Nos. 7976 of 2019
- **Bench:** S. Ravindra Bhat, Dipankar Datta
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/paschimanchal-vidyut-vitran-nigam-ltd-v-raman-ispat-private-limited-ors-36570
- **Pages:** 47

## Headnote

Insolvency and Bankruptcy Code, 2016 - ss.238, 53 -
Overriding effect of s.238 - Distribution of assets u/s.53 - Dues
payable to secured creditors vis-à-vis Central or State GovernmentHeld: s.238, IBC overrides the provisions of the Electricity Act, 2003
despite the latter containing two specific provisions which open
with non-obstante clauses (ss.173 and 174) - Provisions of the IBC
treat the dues payable to secured creditors at a higher footing than
dues payable to Central or State Government- Electricity Act, 2003
- ss.173, 174.
Insolvency and Bankruptcy Code, 2016 - s.53(1)(a)-(f) -
Waterfall mechanism - Priority of claims - Order of distribution of
assets - "government dues" - Corporate debtor entered into an
agreement with appellant-PVVNL for supply of electricity - PVVNL
raised bills for supply of electricity to the corporate debtor but
dues remained unpaid - PVVNL attached the corporate debtor's
properties - The Tehsildar, restrained transfer of property by sale,
donation or any other mode, and also created a charge on the
properties - Corporate debtor underwent resolution process which
was not successful and became subject to liquidation - District
Collector issued notice for recovery of outstanding dues - NCLT
directed Tehsildar to immediately release property in favour of the
liquidator of the corporate debtor for enabling its sale, and after
realisation of its value, for distributing the proceeds in accordance
with the IBC - Appeal rejected by NCLAT - PVVNL argued that
rights of electricity suppliers like PVVNL were not subordinate and
subject to the 'priority of claims' mechanism under the IBC - Plea
of the liquidator that dues owed to PVVNL were technically owed to
the "government", and thus occupied a lower position in the order
of priority of clearance - Held:"government dues" is not defined
in the IBC - It finds place only in the preamble - However, what
[2023] 10 S.C.R. 1221 : 2023 INSC 625
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constitutes such dues is spelt out in the 'waterfall mechanism' u/
s.53(1)(e), which inter alia states that, "Any amount due to the Central
Government and the State Government including the amount to be
received on account of the Consolidated Fund of India and the
Consolidated Fund of the State" ranks lower in priority to the class
of creditors described in Clauses (a) to (d) of s.53(1) - There exists
a separate enumeration or specification of the Central Government
and State Government dues, as a class apart from other creditors,
including creditorswho may have secured interest (in respect of which
amounts may be payable tothem) - These dues are distinct and have
to be treated as separate from those owed to secured creditors -
Further, PVVNL undoubtedly has government participation however,
that does not render it a government or a part of the 'State Government'
- Its functions can be replicated by other entities, both private and
public - Therefore, dues or amounts payable to PVVNL do not fall
within the description of s.53(1)(f) - Uttar Pradesh Electricity Supply
Code, 2005 - General Clauses Act, 1897 - ss.3(8), 3(60).
Insolvency and Bankruptcy Code, 2016 - Scheme of -
Discussed.
Electricity Act, 2003 - Uttar Pradesh Electricity Supply Code,
2005 - Outstanding electricity dues, if a 'charge' on assets of
corporate debtor - Circumstances in which such a 'charge' could
be constituted in law - Held: In K.C. Ninan v. Kerala State Electricity
Board, Supreme Court examined such circumstances and held that
the creation of a charge need not necessarily be based on an express
provision of the 2003 Act or plenary legislation, but could be created
by properly framed regulations authorized under the parent statute
- Thus, in the present case, PVVNL rightly argued that by virtue of
Clause 4.3(f)(iv) of the Supply Code, read with the stipulations in
the agreement between the parties, a charge was created on the
assets of the corporate debtor - Order of the NCLT also re

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PASCHIMANCHAL VIDYUT VITRAN NIGAM LTD.
v.
RAMAN ISPAT PRIVATE LIMITED & ORS.
(Civil Appeal Nos. 7976 of 2019)
JULY 17, 2023
[S. RAVINDRA BHAT AND DIPANKAR DATTA, JJ.]
Insolvency and Bankruptcy Code, 2016 - ss.238, 53 -
Overriding effect of s.238 - Distribution of assets u/s.53 - Dues
payable to secured creditors vis-à-vis Central or State GovernmentHeld: s.238, IBC overrides the provisions of the Electricity Act, 2003
despite the latter containing two specific provisions which open
with non-obstante clauses (ss.173 and 174) - Provisions of the IBC
treat the dues payable to secured creditors at a higher footing than
dues payable to Central or State Government- Electricity Act, 2003
- ss.173, 174.
Insolvency and Bankruptcy Code, 2016 - s.53(1)(a)-(f) -
Waterfall mechanism - Priority of claims - Order of distribution of
assets - "government dues" - Corporate debtor entered into an
agreement with appellant-PVVNL for supply of electricity - PVVNL
raised bills for supply of electricity to the corporate debtor but
dues remained unpaid - PVVNL attached the corporate debtor's
properties - The Tehsildar, restrained transfer of property by sale,
donation or any other mode, and also created a charge on the
properties - Corporate debtor underwent resolution process which
was not successful and became subject to liquidation - District
Collector issued notice for recovery of outstanding dues - NCLT
directed Tehsildar to immediately release property in favour of the
liquidator of the corporate debtor for enabling its sale, and after
realisation of its value, for distributing the proceeds in accordance
with the IBC - Appeal rejected by NCLAT - PVVNL argued that
rights of electricity suppliers like PVVNL were not subordinate and
subject to the 'priority of claims' mechanism under the IBC - Plea
of the liquidator that dues owed to PVVNL were technically owed to
the "government", and thus occupied a lower position in the order
of priority of clearance - Held:"government dues" is not defined
in the IBC - It finds place only in the preamble - However, what
[2023] 10 S.C.R. 1221 : 2023 INSC 625
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constitutes such dues is spelt out in the 'waterfall mechanism' u/
s.53(1)(e), which inter alia states that, "Any amount due to the Central
Government and the State Government including the amount to be
received on account of the Consolidated Fund of India and the
Consolidated Fund of the State" ranks lower in priority to the class
of creditors described in Clauses (a) to (d) of s.53(1) - There exists
a separate enumeration or specification of the Central Government
and State Government dues, as a class apart from other creditors,
including creditorswho may have secured interest (in respect of which
amounts may be payable tothem) - These dues are distinct and have
to be treated as separate from those owed to secured creditors -
Further, PVVNL undoubtedly has government participation however,
that does not render it a government or a part of the 'State Government'
- Its functions can be replicated by other entities, both private and
public - Therefore, dues or amounts payable to PVVNL do not fall
within the description of s.53(1)(f) - Uttar Pradesh Electricity Supply
Code, 2005 - General Clauses Act, 1897 - ss.3(8), 3(60).
Insolvency and Bankruptcy Code, 2016 - Scheme of -
Discussed.
Electricity Act, 2003 - Uttar Pradesh Electricity Supply Code,
2005 - Outstanding electricity dues, if a 'charge' on assets of
corporate debtor - Circumstances in which such a 'charge' could
be constituted in law - Held: In K.C. Ninan v. Kerala State Electricity
Board, Supreme Court examined such circumstances and held that
the creation of a charge need not necessarily be based on an express
provision of the 2003 Act or plenary legislation, but could be created
by properly framed regulations authorized under the parent statute
- Thus, in the present case, PVVNL rightly argued that by virtue of
Clause 4.3(f)(iv) of the Supply Code, read with the stipulations in
the agreement between the parties, a charge was created on the
assets of the corporate debtor - Order of the NCLT also reveals
that this position was accepted - This is evident from the order of
the NCLAT which clarified that PVVNL also came under the
definition of 'secured operational creditor' as per law - This finding
was affirmed by the impugned order - Therefore, the conclusion
that PVVNL is a secured creditor cannot be disputed - Electricity.
Insolvency and Bankruptcy Code, 2016 - ss.52, 53(1)(e), (f)
- Government debts, operational debts vis-à-vis dues owed to
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unsecured financial creditors-Rationale for placing secured
creditors who relinquish their security, higher in priority- Held:
The priority of claims, indicated in the hierarchy of preferences,
under the waterfall mechanism accords government debts [clause
(e)] and operational debts [clause (f)] lower priority than dues
owed to unsecured financial creditors - Further, debts owed to a
secured creditor, whenever such secured creditor "has relinquished
security in the manner set out in s. 52" receive a fairly high priority
(immediately after insolvency resolution process costs) - When the
secured creditor does not relinquish security, the priority of claim is
lower [s.53(1)(e)(ii)] in respect of "any amount unpaid following
the enforcement of security interest" - Amounts due to the
government (i.e., payable into the Consolidated Fund of India or
Consolidated Fund of a State) are ranked in the same manner as
those of secured creditors who do not relinquish their security interest
[s.53(1)(e)(ii)]- Aforesaid rationale discussed.
Electricity Act, 2003 - ss.50, 56, 181(2)(x) - Uttar Pradesh
Electricity Supply Code, 2005 - Clause 4.3 (f) (iv), Clause 6.15 -
Recovery mechanism under- Discussed- Uttar Pradesh Government
Electrical Undertakings (Dues Recovery) Act, 1958.
Insolvency and Bankruptcy Code, 2016 - s.53(1)(f) -
Constitution of India - Article 265 - "government dues" - Held:
Dues payable or requiring to be credited to the Treasury, such as
tax, tariffs, etc. which broadly fall within the ambit of Article 265
are 'government dues' and therefore covered by s.53(1)(f) - Whereas,
dues payable to statutory corporations which do not fall within the
description "amounts due to the central or state government" for
instance amounts payable to corporations created by statutes which
have distinct juristic entity but whose dues do not constitute
government dues payable or those payable into the respective
Consolidated Funds stand on a different footing.
Companies Act, 2013 - ss.77, 78, 3(31) - Plea of the liquidator
that without registration of charge u/s.77, the same was
unenforceable under liquidation proceedings - Held: s.78 enacts
that when a company whose property is subject to charge, fails to
register it, the charge holder (or the person entitled to the charge
over the company's assets) can seek its registration - s.3(31) defines
"security interest" in the widest terms - Liquidator cannot urge this
PASCHIMANCHAL VIDYUT VITRAN NIGAM LTD. v. RAMAN
ISPAT PRIVATE LIMITED & ORS.
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aspect at this stage, because of the concurrent findings of the NCLT
and the NCLAT that PVVNL is a secured creditor - Further, on facts,
it is not appropriate to rule on the submissions of the liquidator visà-vis the fact of non-registration of charges u/s.77.
Interpretation of Statutes -Insolvency and Bankruptcy Code,
2016 - Gujarat Value Added Tax Act, 2003-Held: When an
enactment uses two different expressions, they cannot be construed
as having the same meaning - Reliance on Rainbow Papers case is
of no avail to the appellant and that judgment is to be confined to
its own facts.
Dismissing the appeal, the Court
HELD: 1.1 The priority of claims, indicated in the hierarchy
of preferences, under the waterfall mechanism is therefore:
Firstly, insolvency resolution process costs and the liquidation
costs; Secondly, workmen's dues for the period of 24 months
preceding the liquidation commencement date and debts owed
to a secured creditor in the event such secured creditor has
relinquished security; Thirdly, wages and any unpaid dues owed
to employees other than workmen for the period of 12 months
preceding the liquidation commencement date; Fourthly, financial
debts owed to unsecured creditors; Fifthly, any amount due to
the central government and the state government and debts owed
to a secured creditor for any amount unpaid following the
enforcement of security interest; Sixthly, any remaining debts
and dues; Seventhly, preference shareholders; and Eighthly equity
shareholders or partners. This hierarchy or order of priority thus
accords government debts [clause (e)] and operational debts
[clause (f)] lower priority than dues owed to unsecured financial
creditors.Debts owed to a secured creditor, whenever such
secured creditor "has relinquished security in the manner set
out in section 52" receive a fairly high priority (immediately after
insolvency resolution process costs), whereas in other cases, i.e.,
when the secured creditor does not relinquish security, the priority
of claim is lower [Section 53 (1) (e) (ii)] in respect of "any amount
unpaid following the enforcement of security interest". Another
feature is that amounts due to the government (i.e., payable into
the Consolidated Fund of India or Consolidated Fund of a State)
are ranked in the same manner as those of secured creditors
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who do not relinquish their security interest [Section 53 (1) (e)
(ii)]. [Paras 27 and 28][1244-C-G]
1.2 Section 52 gives an option to secured creditors to either
relinquish their security interest, in the liquidation process (the
procedure for which is prescribed in Regulations 21 and 21A of
the Liquidation Regulations), or proceed to enforce it. In case of
the latter option, the secured creditor has to first indicate its
option, within the time prescribed (30 days, in Form C or D of
Schedule II to the Liquidation Regulations). The liquidator may
then, per Section 52 (3), permit the secured creditor to realize
such dues as are proved to exist, as security debts. Upon
clearance by the liquidator, the secured creditor may proceed to
enforce its claim, under Section 52 (4). If there is resistance during
the process, the secured creditor may approach the NCLT
[Section 52 (5) and (6)]. Upon enforcement, any excess amount
realized should be tendered to the liquidator [Section 52 (7)]. It
is thus, apparent, that a secured creditor has to take a calculated
decision, at the outset of the liquidation process, whether or not
to relinquish its secured interest. In case it does so, its dues
rank high in the waterfall mechanism. In case it chooses not to
relinquish its security interest, and instead proceeds to enforce
it without success or is unable to realize all its dues in the process
of enforcement, ithas to then perforce stand lower in priority,
and await distribution of assets upon realization of the liquidation
estate, by the liquidator, vis-à-vis the balance of its dues. The
procedure envisioned, thus, takes a nuanced approach for the
recovery of a secured creditor's dues. In case they opt to
relinquish the security, their priority is ranked high; in case, they
seek to enforce such security, subject to intimation and
verification by the liquidator, they can proceed to do so. In the
event of short fall, they rank lower in priority. This appears to be
the reason, as is clear from the explanation provided in response
to comments as a result of Parliamentary debates in 2018, that
secured creditors opting not to relinquish their security interest
are "presumed that such secured creditors have recovered most
of their dues by enforcement of their security outside the
liquidation proceedings".27 There is sound logic in this, because
those opting to 'stand out' and enforce security interest, are
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permitted to do so; in the event of excess recovery, they have to
intimate and hand over such excess for distribution in liquidation
proceeding; in case they are unable to recover their dues, for
such of the dues as are outstanding, such secured creditors are
ranked low. The provisions of the IBC are carefully thought out,
and give options to secured creditors, and balance their interests
with those of other creditors in a liquidation proceeding.
[Paras 34-38][1249-F-G; 1250-A-F; 1251-A-B; 1256-B]
Moser Baer Karamchari Union thr. President Mahesh
Chand Sharma v. Union of India & Ors. (2023) SCC
OnLine SC 547 - referred to.
1.3 By virtue of Section 56 of the 2003 Act, in the event of
any person's neglect "to pay any charge for electricity or any
sum other than a charge for electricity" payable "in respect of
supply, transmission or distribution or wheeling of electricity to
him" (after a clear fifteen days' notice in writing) "and without
prejudice to his rights to recover such charge or other sum by
suit", a licensee (including a distribution licensee such as PVVNL)
is empowered to disconnect electricity supply to such consumer
or person. By virtue of Section 181(2)(x) of the 2003 Act, State
Commissions are empowered to frame regulations. Section 50
empowers the State Commissions to frame the "Electricity Supply
Code" to provide for recovery of electricity charges, intervals
for billing of electricity charges, disconnection of supply of
electricity for non-payment, etc. These provisions in the 2003
Act and the respective Codes form the legal framework for
recovery of dues by various kinds of licensees under the 2003
Act. In the present case, the Uttar Pradesh State Commission
had framed the 2005 Supply Code. Clause 6.15 of the 2005
Code enacts that recovery of arrears shall be in accordance with
the provisions of the Uttar Pradesh Government Electrical
Undertakings (Dues Recovery) Act, 1958. [Paras 39-41]
[1256-B-G]
1.4 A recent ruling of this court in K.C. Ninan v. Kerala
State Electricity Board examined the circumstances in which such
a 'charge' could be constituted in law. This court held that the
creation of a charge need not necessarily be based on an express
provision of the 2003 Act or plenary legislation, but could be
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created by properly framed regulations authorized under the
parent statute. In these circumstances, the argument of PVVNL
that by virtue of Clause 4.3(f)(iv) of the Supply Code, read with
the stipulations in the agreement between the parties, a charge
was created on the assets of the corporate debtor, is merited. A
careful reading of the impugned order of the NCLT also reveals
that this position was accepted. This is evident from the order of
the NCLAT which clarified that PVVNL also came under the
definition of 'secured operational creditor' as per law. This finding
was not disturbed, but rather affirmed by the impugned order. In
these circumstances, the conclusion that PVVNL is a secured
creditor cannot be disputed. [Paras 42, 43][1258-A-C]
K.C. Ninan v. Kerala State Electricity Board 2023 SCC
Online SC 603 - relied on.
1.4 The counsel for the liquidator had submitted that dues
owed to PVVNL were technically owed to the "government", and
thus occupied a lower position in the order of priority of clearance.
The expression "government dues" is not defined in the IBC - it
finds place only in the preamble. However, what constitutes such
dues is spelt out in the 'waterfall mechanism' under Section
53(1)(e), which inter alia states that, "Any amount due to the
Central Government and the State Government including the
amount to be received on account of the Consolidated Fund of
India and the Consolidated Fund of the State" ranks lower in
priority to the class of creditors described in Clauses (a) to (d) of
Section 53(1). Thus, there exists a separate enumeration or
specification of the Central Government and State Government
dues, as a class apart from other creditors, including creditors
who may have secured interest (in respect of which amounts may
be payable to them). The repeated reference of lowering of priority
of debts to the government, on account of statutory tax, or other
dues payable to the Central Government or State Government,
or amounts payable into the Consolidated Fund on account of
either government, in the various reports which preceded the
enactment of the IBC, as well as its Preamble, means that these
dues are distinct and have to be treated as separate from those
owed to secured creditors. The Central Government and State
Government are defined by the General Clauses Act, 1897. The
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former is defined by Section 3(8), 32 and latter by Section 3 (60).
[Para 44][1258-D-G]
Shrikant v. Vasantrao & Ors. [2006] 1 SCR 496 -
referred to.
1.5 The specific mention of other class of creditors whose
dues are statutory, such as dues payable to workmen or
employees, "the provident fund, the pension fund, the gratuity
fund" under Section 36(4), which excludes these enumerated
amounts from the liquidation, especially clarifies that not all dues
owed under statute are treated as 'government' dues. In other
words, dues payable to statutory corporations which do not fall
within the description "amounts due to the central or state
government" such as for instance amounts payable to corporations
created by statutes which have distinct juristic entity but whose
dues do not constitute government dues payable or those payable
into the respective Consolidated Funds stand on a different
footing. Such corporations may be operational creditors or financial
creditors or secured creditors depending on the nature of the
transactions entered into by them with the corporate debtor. On
the other hand, dues payable or requiring to be credited to the
Treasury, such as tax, tariffs, etc. which broadly fall within the
ambit of Article 265 of the Constitution are 'government dues'
and therefore covered by Section 53(1)(f) of the IBC. PVVNL
undoubtedly has government participation. However, that does
not render it a government or a part of the 'State Government'.
Its functions can be replicated by other entities, both private and
public. The supply of electricity, the generation, transmission,
and distribution of electricity has been liberalized in terms of the
2003 Act barring certain segments. Private entities are entitled
to hold licenses. In this context, it has to be emphasized that
private participation as distribution licensees is fairly widespread.
For these reasons, it is held that in the present case, dues or
amounts payable to PVVNL do not fall within the description of
Section 53(1)(f) of the IBC. [Paras 46, 47][1261-B-G]
Municipal Commissioner of Dum Dum Municipality & Ors.
v. Indian Tourism Development Corporation & Ors. 1995
(5) SCC 251 : [1995] 2 Suppl. SCR 433 - relied on.
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1.6 Section 53 enacts the waterfall mechanism providing for
the hierarchy or priority of claims of various classes of creditors.
The careful design of Section 53 locates amounts payable to secured
creditors and workmen at the second place, after the costs and
expenses of the liquidator payable during the liquidation
proceedings. However, the dues payable to the government are
placed much below those of secured creditors and even unsecured
and operational creditors. This design was either not brought to
the notice of the court in Rainbow Papers or was missed altogether.
In any event, the judgment has not taken note of the provisions of
the IBC which treat the dues payable to secured creditors at a
higher footing than dues payable to Central or State Government.
The Gujarat Value Added Tax Act, 2003 no doubt creates a charge
in respect of amounts due and payable or arrears. It would be
possible to hold [in the absence of a specific enumeration of
government dues as in the present case, in Section 53(1)(e)] that
the State is to be treated as a 'secured creditor'. However, the
separate and distinct treatment of amounts payable to secured
creditor on the one hand, and dues payable to the government on
the other clearly signifies Parliament's intention to treat the latter
differently- and in the present case, having lower priority. This
intention is also evident from a reading of the preamble to the Act
itself. When an enactment uses two different expressions,
they cannot be construed as having the same meaning.
[Paras 49-51][1262-G-H; 1263-A-E]
State Tax Officer v. Rainbow Papers Ltd. [2022] 13 SCR
808 - distinguished.
Brihan Mumbai Mahanagarpalika & Anr. v. Willington
Sports Club & Ors. [2013] 16 SCR 216 - referred to.
1.7 Section 238 of the IBC overrides the provisions of the
Electricity Act, 2003 despite the latter containing two specific
provisions which open with non-obstante clauses (i.e., Section
173 and 174). [Para 52][1263-F-G]
Sundaresh Bhatt, Liquidator of ABG Shipyard v. Central
Board of Indirect Taxes and Customs 2022 SCC Online
SC 1101; Duncans Industries Ltd. v. AJ Agrochem (2019)
9 SCC 725 : [2019] 12 SCR 830 - relied on.
PASCHIMANCHAL VIDYUT VITRAN NIGAM LTD. v. RAMAN
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Innoventive Industries Ltd. v. ICICI Bank &Anr. [2017]
8 SCR 33; CIT v. Monnet Ispat& Energy Ltd. (2018) 18
SCC 786; Ghanashyam Mishra & Sons (P) Ltd. v.
Edelweiss Asset Reconstruction Co. Ltd. [2021] 13 SCR
737; Jagmohan Bajaj v. Shivam Fragrances Private
Limited 2018 SCC OnLine NCLAT 413 - referred to.
1.8 Section 78 enacts, that when a company whose property
is subject to charge, fails to register it, the charge holder (or the
person entitled to the charge over the company's assets) can
seek its registration. Section 3 (31) of the IBC defines "security
interest" in the widest terms. In this court's opinion, the liquidator
cannot urge this aspect at this stage, because of the concurrent
findings of the NCLT and the NCLAT that PVVNL is a secured
creditor. [Para 55][1266-E]
Board of Trustees, Port of Mumbai v. Indian Oil
Corporation [1998] 2 SCR 774; Jitender Nath Singh v.
Official Liquidator & Ors. [2012] 13 SCR 339; ICICI
Bank Ltd. v. Sidco Leathers Ltd. [2006] Supp 1 SCR
528; Jalgaon Janta Shakari Bank Ltd. v. Joint
Commissioner of Sales Tax, Nodal 9, Mumbai & Anr.
2022 SCC OnLine Bom 1767; The West Bengal State
Electricity Distribution Company Limited v. Sri Vasavi
Industries Limited & Anr. 2022 SCC Online Cal 1918;
Union of India & Ors. v. Shah Goverdhan L. Kabra
Teachers' College [2002] Supp 3 SCR 220; UCO Bank
& Anr. v. Dipak Debbarma & Ors. [2016] 11 SCR 723;
Swiss Ribbons (P) Ltd. v. Union of India (2019) 4 SCC
17 : [2019] 3 SCR 535; K. Shashidhar v. Indian Overseas
Bank [2019] 3 SCR 845; Committee of Creditors of Essar
Steel India Limited v. Satish Kumar Gupta & Ors. [2019]
16 SCR 275; Member, Board of Revenue v. Anthony Paul
Benthall [1955] 2 SCR 842 - referred to.
The Bankruptcy Law Reforms Committee Report, (2015),
Heading 5.5.8- Establishing Priority of Payout in
Liquidation; Report of the Insolvency Law Committee
(2020)- Heading 7.3- Realisation or Relinquishment
of Security Interest by a Secured Creditor (pg. 76) -
referred to.
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Case Law Reference
[1998] 2 SCR 774
referred to
Para 7
[2022] 13 SCR 808
distinguished
Para 9
[2012] 13 SCR 339
referred to
Para 15
[2006] Supp 1 SCR 528
referred to
Para 15
[2002] Supp 3 SCR 220
referred to
Para 18
[2016] 11 SCR 723
referred to
Para 18
[2017] 8 SCR 33
referred to
Para 18
[2019] 3 SCR 535
referred to
Para 18
[2019] 3 SCR 845
referred to
Para 22
[2019] 16 SCR 275
referred to
Para 22
[2006] 1 SCR 496
referred to
Para 44
[1995] 2 Suppl. SCR 433
relied on
Para 45
[1955] 2 SCR 842
referred to
Para 51
[2013] 16 SCR 216
referred to
Para 51
[2019] 12 SCR 830
relied on
Para 52
(2018) 18 SCC 786
referred to
Para 52
[2021] 13 SCR 737
referred to
Para 52
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 7976
of 2019.
From the Judgment and Order dated 15.05.2019 of the National
Company Law Appellate Tribunal in CAAT No. 639 of 2018.
Pradeep Misra, Daleep Dhyani, Bhuwan Nchand, Suraj Singh,
Manoj Kumar Sharma, Advs. for the Appellant.
Arvind Kumar Gupta, Ms. Henna George, Ms. Shivani Sharma,
Ms. Purti Gupta, Advs. for the Respondents.
The Judgment of the Court was delivered by
S. RAVINDRA BHAT, J.
1. The appellant Paschimanchal Vidyut Vitran Nigam Limited
(hereinafter, "PVVNL") is aggrieved by an order of the National
PASCHIMANCHAL VIDYUT VITRAN NIGAM LTD. v. RAMAN
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Company Law Appellate Tribunal (hereinafter, "NCLAT")1 which
rejected its appeal against an order of the National Company Law
Tribunal, Allahabad (hereinafter, "NCLT"/ "Adjudicating Authority"),2
which allowed an application directing the District Magistrate and
Tehsildar, Muzaffarnagar to immediately release property (which was
previously attached at the request of the appellant) in favour of the
liquidator of the respondent Raman Ispat Pvt. Ltd. (hereinafter, "corporate
debtor") for enabling its sale, and after realisation of its value, for
distributing the proceeds in accordance with the provisions of the
Insolvency and Bankruptcy Code, 2016 (hereinafter, "IBC" / "Code").
I. FACTS
2. The parties had entered into an agreement on 11.02.2010 for
supply of electricity. Clause 5 of the agreement provided that:
"The outstanding dues will be a charge on the assets of the
company. Before sale is made, the outstanding dues will be
cleared and, (in) the alternative the deed to agreements/sale
will specifically mention the outstanding dues and the method
of its payment."
3. PVVNL raised bills for supply of electricity to the corporate
debtor from time to time. Since the dues remained unpaid, PVVNL
attached the corporate debtor's properties by Order No. 1048, dated
12.01.2016. The Tehsildar, Muzaffarnagar by Order No. 1423F dated
23.01.2016, restrained transfer of property by sale, donation or any other
mode, and also created a charge on the properties. The corporate debtor
initially underwent resolution process under the IBC, however that process
was not successful. It therefore became subject to liquidation.
4. Under the final bill dated 27.01.2017, the total arrears due were
4,32,33,883/-. Of this, the District Collector issued notice for recovery
of outstanding dues to the tune of 2,50,14,080/-, by auction of movable
and immovable properties located at Khasara No. 0.4710, on 05.03.2018.
The liquidator alleged that unless the attachment orders of the District
Collector, Muzaffarnagar and Tehsildar, Muzaffarnagar were set aside
by the NCLT, no buyer would purchase the property of the corporate
debtor due to uncertainty about the authority of the liquidator to sell the
property. The liquidator also took the plea that PVVNL's claim would
1 Company Appeal (AT) (Insolvency) No. 639 of 2018, dated 15.05.2019.
2 C.A. No. 88/ALD/2018 in CP No. (IB) 23/ALD/2017, dated 21.08.2018.
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be classified in order of priority prescribed under Section 53 of the IBC,
and PVVNL would be entitled to pro rata distribution of proceeds along
with the other secured creditors from sale of liquidation assets.
5. The liquidator's position ultimately led the NCLAT to direct the
District Magistrate and Tehsildar, Muzaffarnagar to immediately release
the attached property in its favour so as to enable sale of the property,
and after realisation of the property's value, to ensure its distribution in
accordance with the relevant provisions of the IBC. The NCLAT also
endorsed NCLT's reasoning that PVVNL fell within the definition of
'operational creditor', which could realize its dues in the liquidation
process in accordance with the law.
II. PVVNL'S ARGUMENTS
6. Mr. Pradeep Mishra, learned advocate for PVVNL, submitted
that Sections 173 and 174 of the Electricity Act, 2003 (hereinafter, "2003
Act") had an overriding effect on all other laws except Consumer
Protection Act, 1986; the Atomic Energy Act,1962; and the Railway
Act, 1989. Being a special law relating to all aspects of electricity -
generation, transmission, distribution and adjudication of disputes- it had
primacy over all other laws, including the IBC, which was a 'general'
law dealing with corporate insolvency implemented much later. In terms
of the 2003 Act, and the regulations framed under it, including the Uttar
Pradesh Electricity Supply Code, 2005 (hereinafter, "2005 Code"), a
special mechanism for recovery of electricity dues existed. The rights
of electricity suppliers like PVVNL, therefore, were not subordinate
and subject to the 'priority of claims' mechanism under the IBC.
Therefore, PVVNL could opt to independently stay out of the liquidation
process and recover its dues.
7. Learned counsel relied on the judgment of this court in Board
of Trustees, Port of Mumbai v. Indian Oil Corporation,3 wherein this
court had ruled that port dues, under the Major Port Trust Act, 1963
overrode all other claims, including those of secured creditors in liquidation
proceedings. Learned counsel urged that Section 238 of IBC could not
override Sections 173 and 174 of the 2003 Act, since the latter (i.e. the
Electricity Act) is a special enactment, and would prevail over the IBC,
which is a later general law, dealing with insolvency.
8. Counsel urged that provisions of the 2003 Act (Sections 42, 45
and 56) and the 2005 Code (Clauses 4.3 and 6.15), prescribed the
3 Board of Trustees, Port of Mumbai v. Indian Oil Corporation, 1998 (2) SCR 774.
PASCHIMANCHAL VIDYUT VITRAN NIGAM LTD. v. RAMAN
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mechanism for recovery of electricity charges. The 2003 Act being a
'special Act' with a non-obstante clause, would have an overriding effect
over the 'general' IBC law. This mechanism for speedy recovery of
electricity dues, had to be given full effect. Thus, the provisions of IBC
and the priority of claims under it in liquidation proceedings, were separate
and applied in respect of other amounts available for distribution, after
the recovery of electricity dues were permitted under the 2003 Act and
2005 Code.
9. Learned counsel also relied upon the decision of this court in
State Tax Officer v. Rainbow Papers Ltd.,4 in which this court held
that by virtue of a security interest created in favour of the government
for tax claims under the Gujarat Value Added Tax Act, 2003, tax authorities
i.e., the government, was a secured creditor under the IBC. This court
held that if a resolution plan excluded such tax or statutory dues payable
to the government, it would not bein conformity with the provisions of
the IBC and, as such, would not be binding on the State.
10. Alternatively, the learned counsel submitted that electricity
dues were also 'security interests' in favour of electricity service
providers. He relied on the definition of 'secured creditor' which meant
"a creditor in favour of whom security interest is created."5 Such
'security interest' was defined under the IBC as:
"Right, title or interest or a claim in a property, created in
favour of, or provided for a secured creditor by a transaction
which secures payment or performance of an obligation and
includes mortgage, charge, hypothecation, assignment and
encumbrance or any other agreement or arrangement
securing payment or performance of any obligation of any
person."6
11. 'Claim in a property' section of the definition could be invoked
when one secured payment or performance of any obligation under the
law. Additionally, the term "transfer" was defined under the IBC to mean:
"Includes sale, purchase, exchange, mortgage, pledge, gift,
loan or any other form of transfer of right, title, possession
or lien."7
4 State Tax Officer v. Rainbow Papers Ltd., 2022 (13) SCR 808.
5 Section 3 (30), IBC.
6 Section 3 (31), IBC.
7 Section 3 (34), IBC.
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12. It was urged that a reading of the definitions of 'security interest'
and 'transfer' indicated that the intent of the IBC was to include, in the
concept of 'security interest', all claims, including statutory claims arising
in law, against the corporate debtor. Thus, obligations and statutory
charges were also 'security interests'.
III. LIQUIDATOR'S ARGUMENTS
13. Mr. Arvind Kumar Gupta, learned advocate appearing for the
liquidator, argued that under the IBC, creditors were classified either as
secured or unsecured. Further, a highlight of the IBC was the distinction
between the financial and operational creditors, and their differential
treatment with regards to recovery. He submitted that the Bankruptcy
Law Reforms Committee Report,2015 and the UNCITRAL Legislative
Guide on Insolvency Law, stipulate that government dues were not given
priority under the IBC. This formed the backdrop of the legislation. In
fact, the Statement of Objects and Reasons to the IBC stipulates alteration
in the priority of payment of government dues.
14. It was argued that in terms of Section 52(3), before realization
of security interest by secured creditors, the liquidator had to verify the
existence of security interest from the records maintained by an
information utility or by such other means as may be specified by the
Insolvency and Bankruptcy Board of India (hereinafter, "Board / IBBI").8
The existence of a security interest could be proved by a secured creditor
in terms of Regulation 21,IBBI (Liquidation Process) Regulations, 2016
(hereinafter, "Liquidation Regulations").
15. Learned counsel submitted that the registration of any charge
was mandatory under Section 77 of the Companies Act, 2013
(corresponding to Section 125 of the erstwhile Companies Act, 1956). It
was highlighted that Section 48 of the Transfer of Property Act, 1882
(hereinafter, "TPA") dealt with priority of rights, and inter-se priorities
amongst creditors prevailed in the distribution of assets in liquidation
proceedings. Counsel referred to this court's judgments of Jitender Nath
Singh v. Official Liquidator & Ors.9 and ICICI Bank Ltd. v. Sidco
Leathers Ltd.10
8 The Insolvency and Bankruptcy Board of India is established under Section 188 of
the IBC. Is powersare enumerated under Section 196.
9 Jitender Nath Singh v. Official Liquidator & Ors., 2012 (13) SCR 339.
10 ICICI Bank Ltd. v. Sidco Leathers Ltd., 2006 Supp (1) SCR 528
PASCHIMANCHAL VIDYUT VITRAN NIGAM LTD. v. RAMAN
ISPAT PRIVATE LIMITED & ORS. [S. RAVINDRA BHAT, J.]
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16. It was submitted that government dues were placed in the
'waterfall mechanism' under Section 53(1)(e)(i) of the IBC. Learned
counsel emphasized that even under the old Companies Act, 1956, Section
529A provided priority to the debts due to the secured creditors and the
workers, and Section 530 made payment of taxes subject to the priority
embodied in Section 529A. Similarly, priority of debts due to secured
creditors and workers was reflected under Section 326 of the Companies
Act, 2013.Section 327 made payment of taxes subject to the priority
embodied in Section 326. It was urged that Section 26E of the
Securitization of Financial Assets and Enforcement of Security Interest
Act, 2002 (hereinafter, "SARFAESI Act") and Section 31B of the
Recovery of Debts Due to Banks and Financial Institutions Act, 1993
(hereinafter, "RDDBFI Act") accorded priority to secured creditors over
other dues. The Full Bench judgment of the Bombay High Court in
Jalgaon Janta Shakari Bank Ltd. v. Joint Commissioner of Sales
Tax, Nodal 9, Mumbai & Anr.,11 reinforced the priority accorded to
secured creditors under Section 26E of SARFAESI Act.
17. Learned counsel submitted that electricity dues did not enjoy
any priority, and cited High Court rulings, especially the judgment of the
Calcutta High Court in The West Bengal State Electricity Distribution
Company Limited v. Sri Vasavi Industries Limited & Anr.12 It was
submitted that creation of charge under a law was a matter of fact
which had to be proved. In the present case, the statute (the 2005 Code)
merely enabled recovery of electricity dues as though they were recovery
of arrears of revenue. That did not result in the creation of 'security
interest' in favour of the appellant. Moreover, such interest was not
registered in accordance with the Liquidation Regulations and Section
77 of the Companies Act, 2013.
18. Learned counsel urged that in case of apparent overlapping
between the two entries, the doctrine of 'pith and substance' had to be
applied to find out the true nature of the legislation and the entry within
which it fell - reliance was placed on the decisions of Union of India
& Ors. v. Shah Goverdhan L. Kabra Teachers' College13 and UCO
11 Jalgaon Janta Shakari Bank Ltd. v. Joint Commissioner of Sales Tax, Nodal 9,
Mumbai & Anr., 2022 SCC OnLine Bom 1767.
12 The West Bengal State Electricity Distribution Company Limited v. Sri Vasavi Industries
Limited & Anr.,2022 SCC Online Cal 1918
13 Union of India & Ors. v. Shah Goverdhan L. Kabra Teachers' College, (2002) Supp
(3) SCR 220.
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Bank & Anr. v. Dipak Debbarma & Ors.14. Having regard to this
principle, IBC was thus a special law dealing with the entire subject
matter of insolvency, bankruptcy and winding up of companies. Its
provisions were later than those of the 2003 Act. Despite Sections 173
and 174 of the 2003 Act, by virtue of Section 238 of IBC, the provisions
of the latter would prevail and have overriding effect. It was submitted
that the law under IBC was constantly evolving since its inception in
2016. Reliance was placed on Innoventive Industries Ltd. v. ICICI
Bank & Anr.,15 and Swiss Ribbons (P) Ltd. v. Union of India16 which
upheld the IBC, and emphasized the overriding nature of the enactment,
by virtue of Section 238.
IV. ANALYSIS
A. SCHEME OF THE IBC
19. The IBC was enacted with the objective of unifying the legal
regime on commercial insolvency. Upon a corporate debtor's default17
in repayment of a debt,18 the insolvency resolution process can be
triggered when the value of the default crosses the statutory threshold
(Section 4); or it may be initiated by the corporate debtor itself or a
financial creditor or operational creditor (Section 6). IBC makes a
distinction between debts owed to both these classes of creditors. A
financial creditor has been defined under Section 5(7) as, "A person to
whom a financial debt is owed". A "financial debt" is defined by
Section 5(8) as a debt which is disbursed against consideration for the
time value of money. On the other hand, an operational creditor is one to
whom an operational debt is owed. "Operational debt" under Section
5(21) is "a claim in respect of provision of goods or services".
20. Sections 7 and 8 of the IBC control the initiation of insolvency
process by financial creditors and operational creditors respectively.
The corporate debtor can contest a debt within a stipulated time period.
The Adjudicating Authority has to determine the existence of a default
from the records of the information utility or on the basis of evidence
14 UCO Bank & Anr. v. Dipak Debbarma & Ors., (2016) (11) SCR 723.
15 Innoventive Industries Ltd. v. ICICI Bank & Anr., (2017) 8 SCR 33.
16 Swiss Ribbons (P) Ltd. v. Union of India (2019) 4 SCC 17.
17 Default is defined in Section 3(12) in wide terms as, "Non-payment of debt when
whole or any part or instalment of the amount of debt has become due and payable and
is not paid by the debtor or the corporate debtor, as the case may be".
18 Per Section 3(11), which states that a debt is, "A liability of obligation in respect of
a 'claim'".